18 Nov How Amazon’s Long Game Yielded a Retail Juggernaut
To study the graph of Amazon’s stock performance in 2015 is to witness a series of stepwise lurches toward commanding new heights. Over all, the stock market has been flat this year, and technology companies, as a group, haven’t fared much better.
Then there’s Amazon, which slipped the atmosphere. Shares of Jeff Bezos’s company have doubled in value so far in 2015, pushing Amazon into the world’s 10 largest companies by stock market value, where it jockeys for position with General Electric and is far ahead of Walmart.
There is a simple explanation for Amazon’s rise, and also a second, more complicated one. The simple story involves Amazon Web Services, the company’s cloud-computing business, which rents out vast amounts of server space to other companies. Amazon began disclosing A.W.S.’s financial performance in April, and the numbers showed that selling server space was a much bigger business than anyone had realized. Deutsche Bank estimates that A.W.S., which is less than a decade old, could soon be worth $160 billion as a stand-alone company. That’s more valuable than Intel.
Yet the disclosure of A.W.S.’s size has obscured a deeper change at Amazon. For years, observers have wondered if Amazon’s shopping business — you know, its main business — could ever really work. Investors gave Mr. Bezos enormous leeway to spend billions building out a distribution-center infrastructure, but it remained a semi-open question if the scale and pace of investments would ever pay off. Could this company ever make a whole lot of money selling so much for so little?
As we embark upon another holiday shopping season, the answer is becoming clear: Yes, Amazon can make money selling stuff. In the flood of rapturous reviews from stock analysts over the company’s earnings report last month, several noted that Amazon’s retail operations had reached a “critical scale” or an “inflection point.” They meant that Amazon’s enormous investments in infrastructure and logistics have begun to pay off. The company keeps capturing a larger slice of American and even international purchases. It keeps attracting more users to its Prime fast-shipping subscription program, and, albeit slowly, it is beginning to scratch out higher profits from shoppers.